State audit finds problems in DHS grant management — again  

A state audit found the Minnesota Department of Human Services Behavioral Health Division did not comply with certain grants management policies, matching similar findings of a 2021 audit.

The audit, released Thursday, found the agency didn’t follow procedures for avoiding conflicts of interest and gauging whether nonprofits were financially stable enough before awarding grants.

The Office of the Legislative Auditor conducted the audit at the request of the bipartisan Legislative Audit Commission after lawmakers, state employees and others expressed concerns about how state grants are awarded. 

The Minnesota State Arts Board was also audited, but auditors found fewer problems.

From 2018 to 2022, DHS and the Arts Board awarded more grants to nonprofit groups than all state agencies. And they were both among the top 10 agencies in total grant dollars sent to nonprofits.

The audit found the DHS Behavioral Health Division failed to complete financial assessments for more than 40% of grants reviewed. The grants ranged from $49,000 to nearly $1 million, and totaled $11.5 million. A 2021 audit had a similar finding.

The audit said by failing to check nonprofits’ financial standing, the agency “may inadvertently award grants to entities that may not be financially healthy or capable stewards of state funds.”

The Legislature also has been accused of failing to properly vet nonprofits before giving them millions in direct appropriations — which were not part of this audit.

DHS Commissioner Jodi Harpstead told auditors the department is “committed to upholding the integrity of the grant pre-award process” and said it has developed systems to “standardize processes and improve policies and practices.”

The state Office of Grants Management — part of the Department of Administration — has issued 13 policies state agencies must follow to manage grants. 

Chuck Johnson, former DHS deputy commissioner, has argued the oversight is unnecessarily complex, with about 50 “procedures” embedded within those 13 policies, with 86 steps to manage a grant from start to finish. 

“It is basically impossible to effectively manage over 2,000 grant contracts through 86 bureaucratic steps,” he wrote in a Reformer column last year. “If DHS continues to manage over 2,000 grants through 86 steps, the chances they will ever have a clean audit are slim to none.”

State agencies spent a half billion dollars annually, on average, on grants to nonprofits from 2018 to 2022. DHS alone spent about $436 million on grants to nonprofits during those years for things like substance use disorder services and mental health services.

Last year, recovery community organizations, which help people recover from addiction, received the most money, at $10 million, followed by nonprofits that help the agency provide linguistically and culturally appropriate services to immigrant communities, at $4.9 million.

The DHS division also failed to make grant reviewers complete a conflict-of-interest form — a failing auditors also found in 2021.

Last year, lawmakers beefed up the Office of Grants Management’s authority and oversight of agencies’ administration of grants.

Tamar Gronvall, commissioner of the state Department of Administration, responded to the audit in a letter saying the report highlights the complexities inherent in setting minimum requirements to limit the potential for fraud, waste and abuse while also allowing for “necessary flexibilities” in agencies’ administration of grants.

Harpstead said DHS created a Central Grants Office last year to improve its grantmaking process, and put a new leadership structure in place in the behavioral health division to better support business needs, including improving the management of contracts and grants.